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What Else Are the Banks Hiding?

Just becauase it's securitized and "off-balance sheet" doesn't mean it will come back on. You need to look at individual basis for how that will happen. Most of it won't and the the bank is not the primary beneficiary of any of it, otherwise it already would be on the balance sheet. You need to find what out is guaranteed. It is a serious oversight to simply say there are off-balance sheet entities. It doesn't remotely encompass anything close to what the real risk is.

P/B vs. P/E: Measuring a Stock's Value

In general I agree with the sentiment of the article, especially when evaluating the market as a whole. However, when looking at an individual situation such as this, you obviously have to determine whether or not they will be an ongoing operating entity. Otherwise, your analysis would have said:

I should buy CFC, WM, BSC, LEH, AIG, WB, FNM, FRE, etc, etc. They have a low P/B!! Whoo hoo!!

In some ways you could approach this from a reverse angle. Note who in the banking sector amongst the fallen have much higher P/B ratios as a sign of a higher chance of remaining an ongoing operating entity which will benefit from the loss of the other cacasses.

Estimating the Risk in Citigroup Stock and Bonds

Why don't you try, errr... you know... looking at what's on the books a little bit!? Are SEC filings really so hard to read that instead you're just going to make stuff up?

Wells Fargo Can Hack Its Writedowns - Can Citi and JPMorgan?

Actually I'm not sure where you're deriving your economic capital in the equation from, so I'd be curious how you're getting an order of magnitude worse in your calculation. JPM has according it's own documents, from memory about $43.3 billion in EC (which is a risk based measure) in comparison to $83 Tier 1 and $120+ Total capital. JPM has an allowance ratio to nonaccruals that is very high in comparison to other companies. They do have a bunch of leveraged loans they can't sell. That's true. But that isn't the paper I'm most concerned about in this environment. If you can come up with a real calculation that brings up the EC calculation to $300 billion+, please share how you're deriving it too. Thanks.

U.S. Banks Still Need To Come Clean on Subprime

I haven't heard too much noise on this and have been waiting, because I've known it too, although the legalese makes it unclear to me exactly what will happen:

"The fact that they sold them won’t help as there are clawback provisions for bad debts and that will take ages to work through the system."

When you start to look at some mortgage lenders out there and the size of subprime loans they've sold off with the view that some of that may be stuffed right back up their @$$ (which I'm sure they will try), they start to look ever more like bankruptcy candidates, depending of course on how much recourse there ends up being. Some companies should essentially profit from this shakeout and some will get slammed. Have been trying to sort out which is which.

Anyone familiar with CA lending laws and the rights of borrowers to walk out on the loans? This is instrumental in understanding WAMU, because they're so heavily weighted towards CA. I have a friend who figures he's $100K upside down up in Sonoma. I've just started looking for details, but I believe he could probably walk out on the loan if he chose to and stick the bank with the problem. The laws are different in different states. If it's easy to walk, the banks exposed out here are gonna have a big problem.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Thanks for everyone's comments. I've found it very helpful in refining my thoughts.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Looking through WM doc's seems to show that credit cards is kind of a small aspect of the overall business. The extremely high ratio of people using their Option ARMs to negatively amortize would be the thing that worries me most glancing over. Hmm.... WM is now yielding 5.6% though. Interesting.

It's funny, I used to think that Option ARMs were kind of a red herring - just because you can negatively amortize doesn't mean you do. Looking at CFC and WM it seems, most people do. I guess I shouldn't be surprised, but I'm kind of shocked. I used to have one, but we certainly didn't use it that way.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Thanks for these posts. In a lot of ways, this type of stuff just strengthens the theory I put forth in the first place. That a big part of what's happened in subprime has nothing to do with the strain of the borrower, but has everything to do with the direction of the market. Excess can work in many ways and I'm sure in this case it has. Thanks for the information.

Subprime Revelation: Early Payment Default-ers Just Don't Care

I've never heard of anyone financing $500k (or whatever) for a $400k house.

Subprime Revelation: Early Payment Default-ers Just Don't Care

Okay a couple of things.

1) I'm sure my case is overstated. The root cause is obviously lending standards and the EPDs are the symptom, but some part of this also seems to reek a bit of people hoping to cash in a lottery ticket. The owners of subprime borrowers are not just immigrants and I wonder if you and I showed up looking for a no-doc loan for no down payment what kind of loan we'd get. Plus, when even the shoe shine boy knows he should buy a house, did he? The problem seems to be is that he was allowed to.

2) Bankruptcies: Great data - exactly what I'm looking for, except for one thing. Bankruptcies took a huge nose dive in 2006 because of the new bankruptcy laws that went into effect in 2005, because of the spike to file before Oct 2005. Over a million filings would actually be a normal number with no root causes other than a reversion to the mean, even north of 1.5 million filings would too. papers.ssrn.com/sol3/p...

3) The primary point of this post is what exactly does the mess mean? There is a theory that this is the coming collapse of the consumer and the economy and it will run straight into Alt-A and all ARM mortgages, so everyone should stuff their money in Europe or something (which has it's own real estate bubble, but who cares about that!). My main point is, as a canary in the coal mine, it's looking more red herring to me, because EPDs are not resets. If this is going to hit all ARMs and people higher up the tree, this should start showing up elsewhere. The federal funds rate change was mostly complete a year ago now. If this is all the start of a disaster, it seems to me there should be more signs of strain. I'm still open and looking for all data which would show it.

4) Rightfully, the lenders are getting slammed. I'm sure you and I can agree on that.

5) If the economy turns, I do believe this can turn into a disaster. But as a foregone conclusion I don't agree and it's an important question, because sometimes it's opportunity that's really staring at you in the face.